Etgar Keret read Slaughterhouse-Five while doing compulsory military service in Israel, and found it liberating. "I used to feel that if I say something's wrong, I have to say how it could be made right," he remarks. "But what I learned from Kurt Vonnegut was that I could write stories that say I may not have a solution, but this is wrong - that's good enough."

Keret's four short-story collections since 1992 have been bestsellers in Israel and translated from Hebrew into 19 languages, including Arabic. Marked by their brevity, the stories can veer from the mundane to the surreal within a couple of pages, with shafts of humour and macabre eruptions of violence. A hip, urban fabulist with an untethered imagination, Keret focuses on small personal dilemmas and intimacies while mirroring the malaise and paranoia of a society braced for violence. In "Hat Trick", a children's magician reaches for a rabbit in a hat, only to pull out the bunny's severed head, then a dead baby, to the ghoulish delight of his young audience. The tale appears in a new collection, Missing Kissinger, published this month. In the title story, an unassuming man longs for mediation between voraciously possessive women.

For Keret, Israeli society reveals the "human condition pushed to the extreme", where "small irritations can erupt in aggression or violence. Everywhere has a sewage system, but in Israel it overflows." For many people, he says, "it can be overwhelming, but for the writer it's like experiencing life at a louder volume."

As well as collaborating on graphic books, Keret is a film-maker whose Malka Lev Adom (Skin Deep) won an Israeli academy award in 1996 and praise at festivals abroad. The mordant sketches he produced as a TV satirist led to his being denounced in the Knesset for anti-semitism, adding to the accusations of hedonism, nihilism and post-Zionism levelled at him by critics. In 1997 he was attacked for a story, "Rabin is Dead", in which the title alludes to both the assassinated prime minister and a child's cat that gets run over.

Keret, aged 39, is often hailed as the voice of young Israelis. Yet his is a fragmented generation, and his anti-heroes tend to be racked by self-doubt and suicidal tendencies, in contrast to a self-styled heroic generation that came of age with the state - more Woody Allen than Moshe Dayan. Speaking of an "intrinsic tension between Israeli and Jewish identity", at London's Jewish Book Week earlier this month, Keret said the idea was that "in the diaspora, Jews are weak, so we Israelis should be the opposite - which is something I try to fight against". He co-authored a stage show, The Entebbe Operation: A Musical (1993), which satirised notions of heroism, while in his story "The Son of the Head of the Mossad", the unlikely scion is a skinny kid who proves a disappointment to his overbearing father.

That story appeared in Gaza Blues (David Paul, 2004), co-authored with the Palestinian writer Samir El-Youssef at the height of the al-Aqsa intifada in 2000. The idea behind the story collection, Keret says, was that "if people are saying we can't coexist in real life, let's coexist in book form, and show we have something in common". According to one of his admirers, Sayed Kashua, a Palestinian Israeli writer whose novel Let It Be Morning was recently published in Britain, "in Israel, there's no place for individualism. It has to be obvious to which party or camp you belong. Etgar is not obvious - he's confusing."

Keret's refusal to wear party allegiances on his lapel has irritated some readers. Writing for newspapers in Israel and abroad, whether exposing IDF conduct at army checkpoints or commenting on disengagement, he finds subtleties are lost. "I said I wanted the settlements wiped off the face of the earth, but not the settlers. This is seen as confused in leftwing discourse: I should say I hate the settlers. But we have a common responsibility in Israel for the situation that's been created. People don't understand. They say: 'Are you for us or against us?'"

Keret is genially expansive for one known for lapidary fiction ("all my family talk a lot"). He lives in Tel Aviv with his wife, Shira Geffen, an actor and theatre director, and their 14-month-old son Lev, and lectures in film at Tel Aviv university. His brother, Nimrod, is a peace activist who founded the legalise marijuana movement in Israel, but has lived for the past two years "in a treehouse in Thailand". His sister Dana became ultra-Orthodox and has 11 children - who are forbidden on religious grounds to read Keret's comic books. Yet Keret sees the siblings as working for shared values, "me through art, my sister through belief, and my brother through social activism. None of us is a rich doctor."

He was born in Tel Aviv in 1967, the youngest of the three. His parents were Holocaust survivors, his mother from Poland and his father from a Yiddish-speaking village on the Polish-Russian border, who "spent two years in a hole" hiding from the Nazis. They spoke little of their own past, but "one would tell a story about the other". Writing became "a place I could be myself".

Keret's treatment of the Holocaust in some stories has drawn charges of irreverence, but he contrasts the "rigid and petrifying" national memory with the living memories his parents passed on. "You're always told, if you weren't there, you can't understand. My father rebelled against that, saying we knew all the emotions he felt." To critics, he says: "It's not your memory; it doesn't belong to the nation. It belongs to me." Nor did his parents see themselves as victims. "It's dehumanising; to protect your victimhood you have to ignore others' pain."

His childhood perception, as someone born in the year of the six day war, was of an Israel "admired for its courage in fighting a stronger enemy". With Israel's invasion of Lebanon in 1982, and the Sabra-Chatila refugee camp massacres, "the image of us only reacting to aggression was broken. The first Lebanon war was Israel's Vietnam. We started to become reflexive; you see that the narrative you live is not the only narrative - others are telling another story. I realised we're making choices. You assume more responsibility."

During military service, he was a "very bad soldier", he says. "Our upbringing was always to ask questions and offer alternatives. They kicked me out of a lot of units." Guarding computers in an underground bunker, he began to write. "In the army you feel violated - there's no private space," he says. "Writing was a life-saver, a way of recovering private territory." The spur was the suicide of his best friend when Keret was 19. "I was the one who found him. Two weeks later, I wrote my first story."

Keret relishes Hebrew, a "unique language, kept in the deep freeze for 2,000 years, then instantly defrosted. It's got gaps, but you can invent words." Yet he feels closer to a Jewish diasporic tradition of Kafka, Isaac Bashevis Singer, Shalom Aleichem and Yiddish folktales than to Israeli writers, seeing his vignettes as a digression from a dominant tradition of nation-building epics. He also lays claim to a form of humour "we've lost along the way", one "not used to put others down, but as a tool for criticising yourself and showing love to those close to you".

"Not a nationalist by nature", Keret takes issue with Yehoshua's "idea of the Israeli as an über Jew, an improved, upgraded Jew". Israelis, in Keret's view, "have a lot to learn from diaspora Jews about values that have vanished from Israeli society. Jewish identity is all about doubting and questioning from a deep moral place.The heroes of the Bible - Jonah, Job - had no problem arguing with God. I'd like to see more of that questioning in Israeli society."

The ambiguity of Keret's stories can infuriate some readers. For "Cocked and Locked", about a violent confrontation between a Palestinian fighter and a young Israeli soldier, he says "I got attacked for being a leftwing liberal and an Arab-hating fascist, because I don't write in the political tradition of saying who's the good guy and who's the bad guy. They were looking for a code." He sees the story as being about the corrupting nature and hypocrisy of military occupation. "When you occupy others and live in an atmosphere of fear where people hate you, you can't keep your morality," he says. "But people can be two-faced. In Israel we say, 'shooting and crying', which means we hate being in this situation, and that we're really good. Or 'purity of the weapon'. But how can a weapon be pure?" He had friends serving in the army during the first intifada of 1987-93. "There's something inhuman about the climate, where everybody wants you out, or dead. Saying we're there but we don't have anything against civilians, as though we're androids, doesn't work. People don't work like that - especially 18-year-old kids.

"What you experience in the army, aged 18 to 21, is what you take through all your life. You cross invisible lines: you shoot someone, get shot, break into people's houses. It's naive to think you won't carry anything into your life." He alludes to an upsurge in casual violence, "people stabbing someone for walking their dog or not giving them a cigarette on the beach". Recalling the film shoot for Total Love in Goa, he likens the tone of some Israeli tourists to Indians to "an Israeli soldier speaking to a Palestinian at a checkpoint - the arrogance and aggression".

He co-wrote the film - about "Israel's drug and travelling culture" - and has co-directed Jellyfish with his wife, based on her own screenplay. Five of his stories have been adapted into an Australian-Israeli animation film, Nine Ninety-Nine; and Wristcutters: A Love Story, a US film starring Tom Waits due for release this summer, is based on one of his novellas. Keret, who is now working on a documentary about his family, loves films by the Coen brothers, where "everything really happens but also serves as a metaphor", along with those of Terry Gilliam.

During the Lebanon war of July 2006, Keret complained of the increasing polarisation of Israeli society, squeezing out room for debate or uncertainty. For him, fiction's strength lies in its "ability to contain ambiguity". A story, he insists, is "always a dialogue between you and the reader".